Tid: 30 maj 2008 kl 13.15-14.00 (observera dagen och tiden).

Plats : Seminarierummet 3733, Institutionen för matematik, KTH, Lindstedts väg 25, plan 7. Karta!

Föredragshållare: Joel Hedlund

Titel: Exposure Model Validation within the Basel II Framework

Sammanfattning: This master thesis addresses the Basel II bank regulations and its implications for exposure model validation in banks. Model validation is a key requirement of the Basel II accord, and this thesis serves as an example on how exposure models are developed and validated within the Basel II framework. Exposure for two types of products is considered, with different underlying risk factors.

The first type of products is bond repurchase agreements (or bond repos). The model for bond repo exposure is based on Monte Carlo simulation of risk free interest rates, exchange rates and credit spreads. The risk factor paths are simulated up to 7 calendar days to reflect the close out risk that arises when a bank cannot immediately unwind the positions in case of a default. The trades are then priced with the simulated risk factors. The model incorporates netting and scenario consistent aggregation of cash and collateral legs. The model is also extended to a few related products.

The second type of products is equity products. The model for equity products is based on Monte Carlo simulation of three risk factors risk free interest rates, exchange rates and equity prices. The risk factor paths are simulated up to 30 years, to reflect the risk of future counterparty defaults, and the trades are priced with the simulated risk factors. The model incorporates netting and scenario consistent aggregation of interest and equity legs.

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